Inflation falls for first time since Harold Macmillan was PM

The Consumer Price Index (CPI) measure of inflation dipped to minus 0.1 per cent according to the Office of National Statistics (ONS).

It is the lowest rate on record and comes after two previous months of zero inflation.

Estimates of past CPI rates suggest it was last negative in March 1960 when Harold Macmillan was Prime Minister and Dwight Eisenhower was in the White House.

The figure of minus 0.1 per cent is in line with projections by the Bank of England in its quarterly Inflation Report last week.

The Bank said it expected inflation to fall below zero before picking up notably towards the end of the year as the effect of lower oil and food prices fades.

Markit chief economist Chris Williamson said: "Deflation has hit the UK, but looks unlikely to stay for long.

"The ongoing lack of inflation is a boon for consumers, acting as a welcome surrogate for wage growth which, although showing signs of rising, remains subdued.

"Alongside falling unemployment, low prices, especially for fuel, have boosted consumer spending, which is consequently providing the main thrust to economic growth at the moment.

"Further weak inflation numbers are to be expected in coming months, but any dip into deflation is likely to be short-lived, and the UK shows few signs of sinking into a Japanese-style deflationary slump."

Samuel Tombs of Capital Economics said: "There are still few signs that very low inflation is having malign economic effects - consumers are undertaking, not delaying, purchases and wage growth is picking up."

Scotiabank's Alan Clarke said: "Enjoy it while it lasts because there is a good chance that inflation will be back in positive territory next month.

"The emphasis is largely symbolic and it shouldn't have come as a surprise to most people. Nonetheless, it is a low point and for now, it represents an obstruction to a Bank of England rate hike.

"That obstruction should begin to disappear around the end of the year when headline inflation is likely to re-accelerate towards 1 per cent and beyond into 2016."

Rain Newton-Smith, CBI director of economics, said: "With inflation set to remain below 1 per cent this year, a rise in interest rates any time soon seems off the cards.

"Rates are likely to remain low into next year and beyond, continuing to help the domestic recovery."

James Sproule, chief economist at the Institute of Directors said: "Deflation can be a chronic problem where it represents a lack of consumer confidence and an unwillingness to spend.

"This danger is very real in some parts of southern Europe, but is not even a distant threat in the UK.

"While deflation does cause the cost of debt to rise in real terms, the benefits to the wider economy of a period of falling prices far outweigh any downsides."

OFFICIAL figures show Consumer Price Index (CPI) inflation turned negative in April. What does this mean?

:: Has this ever happened before?

CPI has never turned negative since comparable records began in 1989. According to an experimental data series by the Office for National Statistics (ONS) going back to 1950, it was last negative, at minus 0.6%, in March 1960.

:: Would it mean the pound in my pocket is worth more?

Yes. CPI at minus 0.1% means a basket of goods worth £100 a year ago now costs £99.90. Low inflation has been driven by falling petrol and grocery prices.

:: Is there a downside?

Sustained falling prices could mean shoppers putting off purchases and firms delaying investment, while mortgages become less affordable, especially if wages drop. But this is thought unlikely, with temporary causes such as low oil prices likely to fade.

:: How will this affect interest rates?

The Bank of England must try to return inflation towards its target of 2% so low CPI should mean rates at 0.5% for longer. Deeper or more prolonged negative inflation could create growing speculation of interest rates being cut even further.

:: How long will this period of deflation last?

A rebound in oil prices and the stability of global food prices mean it is likely to be short-lived. Tom Stevenson, investment director at Fidelity Personal Investing, said: "Households should enjoy the cheaper cost of living and real earnings growth while it lasts. Inflation is expected to pick up towards the end of the year."